3/10/2003 @ 7:00AM

The Other Gulf

Oilmen looking for an alternative to the politically troubled oil fields of the Middle East think they see one beneath the waters off West Africa. The bad news is that the arc of nations stretching along the shore of the Gulf of Guinea from the Ivory Coast to Angola looks as politically testing as Arabian ones.

With estimated reserves of 24 billion barrels, the Gulf of Guinea is likely to become the world’s leading deepwater offshore production center. Its fields contain good-quality low-sulfur crude. They are directly across the Atlantic from refineries on America’s East Coast (Africa lacks much refining capacity of its own outside Nigeria and South Africa). It is open sea–no maritime choke points to navigate.

Being offshore isolates the fields from the vagaries of Africa’s civil and border wars, coups, rebellions and revolutions. Islam is well entrenched, but it is not the dominant faith of the coastal nations. Nor is there evidence that Al-Qaeda has got a foothold in the region, as it has on the eastern side of the continent–though it may have had contacts with local fundamentalist groups in Islamic northern Nigeria.

“There is no doubt that increased oil production from Africa would improve global energy security,”
Walter H.
Kansteiner
Walter H. Kansteiner
, U.S. Asst. Secretary of State for African Affairs, told an energy forum held in Houston last November. Oil-rich West Africa “has become a [U.S.] strategic interest,” he says.

American officials and pols have quietly courted their counterparts there, while American oil companies have been leading an equally quiet commercial invasion of the area. Previously, Europe’s
Royal Dutch/Shell
and
TotalFinaElf
, along with
ChevronTexaco
, were the most prominent of the oil majors operating in the region.

Just last month,
ExxonMobil
announced a $3 billion development project off Angola. Its Kizomba B block is thought to be sitting on nearly 1 billion barrels of crude. First oil is expected to be landed by early 2006, with a target production rate of 250,000 barrels per day.

According to industry estimates, U.S. oil companies, including independents such as
Amerada Hess
,
Marathon
and
Ocean Energy
, will invest more than $10 billion in West African oil exploration and development this year. That would be five times as much as in 2001, a year in which all foreign direct investment in sub-Saharan Africa totaled only $14.3 billion, according to U.S. Commerce Department figures.

On best guesses, the region has the potential to supply 25% of the U.S.’s oil imports by 2015. That would match the share now held by countries in the Middle East, and would be up from 15% now. Nigeria, Africa’s leading oil producer and the only significant sub-Saharan one, provides four-fifths of that–making it America’s number five supplier. Those exports were worth $6.8 billion to Nigeria in 2001.

West Africa produced 5% of the world’s crude oil in 2002, according to Energy Information Agency data. While the region’s share has barely increased over the past decade, it has kept up with the 11% increase in world oil production over that time. West Africa would have gained more market share were Nigeria, which produces three-fifths of the region’s oil, not constrained by OPEC quotas.

Nigeria, which is the only sub-Saharan African member of the oil producers’ cartel, plans to increase daily output from 2.1 million to 3 million barrels, rising to 4.4 million by 2020. Angola, Nigeria’s only potential regional rival as an oil state, is expected to double its output to 3.3 million barrels a day by 2020. Equatorial Guinea, which has been issuing large numbers of prospecting licenses and seeing its speck of an economy grow at breakneck speed on the back of an oil-exploration boom, could emerge as the region’s third-largest producer, with 740,000 barrels a day by then.

It is Nigeria that encapsulates the oil industry’s worries about the region. On March 5, a prominent politician who was organizing the main opposition party’s electoral campaign in the oil-rich Niger delta was shot dead by unidentified gunmen in what is widely regarded as a political killing. There are persistent problems with labor unrest. Oil industry unions were again on strike in February. Last year, saboteurs knocked out a Shell Oil pumping station in the south of the country that will take 18 months to repair.

Local management is poor and the local economy inefficient. Export volumes in 2001 fell 5% compared to 2000′s levels because of repeated disruptions to supply. Bigger concerns exist about environmental damage, civil rights abuses and corruption.

Then there are religious, ethnic and regional rivalries. Thirty years ago, the country fought a bloody separatist war over control of its eastern oil fields. Nigeria clashes sporadically with Cameroon over a disputed oil-rich maritime border, a 400-square-mile area off the Bakassi peninsula that may contain as much as 10 billion barrels of oil as well being rich in fish. The United Nations is mediating between the two countries after Nigeria implicitly rejected a World Court ruling last year ceding ownership of the Bakassi peninsula to Cameroon

Further south, Angola has been war torn for four decades and faces a future of indefinite low-level guerrilla war. In the Ivory Coast, there is hot civil war. Most of the oil-bearing countries are at best fragile democracies emerging from long periods of autocratic postcolonial single-party or military rule. Corruption is endemic, smuggling widespread and the institutions of a stable society–notably an independent judiciary, accountability and transparency in government as well as free and fair elections–are poorly established.

Many of the region’s governments are also overly dependent on oil. In Nigeria, oil accounts for 80% of government revenue and 90% of foreign exchange earnings. In Angola, oil provides 60% of GDP and 90% of government revenue.

Local oil companies are state-owned, including in Nigeria and Angola. International oil companies work with them through joint ventures, creating a potentially cozy complicity between the power elites and oil companies. In Equatorial Guinea, the government doesn’t make public all its revenue. Who knows what happens to its share of the monies the oil companies hand over?

Financier and Forbes billionaires list member George Soros is leading a campaign to make oil companies declare payments they make to governments in the countries in which they operate. He wants the U.S. Securities and Exchange Commission to make such disclosures a condition of stock market listings.

The Bush Administration is unlikely to press the oil companies to be agents of reform. Kansteiner puts helping Africa fight corruption through strengthening its government institutions as the “number one” role for U.S. government policy in the region.

Optimists take heart from the fact that African disputes–both civil unrest and armed conflicts–are like American politics: local. “Political discord or dispute in African oil states is unlikely to take on a regional or ideological tone that would result in a joint embargo by suppliers at once,”
Robert
Murphy
Robert Murphy
, a U.S. State Department economist, said last year.

Congressman
Ed
Royce
Ed Royce
, the Californian Republican who chairs the House subcommittee on African affairs, put it more bluntly: “It is very, very difficult to imagine a
Saddam
Hussein
Saddam Hussein
in Africa.”

True, Africa has yet to throw up its equivalent of a Pan-Arabist. Nonetheless, there are persistent reports that the U.S. government may build a naval base in the strategically important island nation of Sao Tome & Principe so it can carry a big stick for stability and provide protection for both U.S.-owned drilling platforms and the tankers that would ply the sea-lanes to the U.S. East coast.

The president of Sao Tome has been quoted in an African newspaper as saying that a base would be able to accommodate an aircraft carrier. Official Washington has never talked of anything more than it is considering help for Sao Tome’s coast guard.

Onshore, the long-term stability issue is how newly enriched oil states deal with their newfound wealth. West Africa is a region of poor nations. Oil can be a “driving force for development or curse for the nations who produce it, if they do not share the wealth…in a transparent manner, says
Terry
Karl
Terry Karl
, development economist at Stamford University.

Some of the consequences of squandering oil wealth and using it to line pockets or repress citizens are now being seen in the Middle East. Africa offers a second chance to learn the lessons.